Tags: Bernanke | Bank | Pay | Structure

Bernanke: Bank Pay Structure Must Change

Wednesday, 09 Jun 2010 02:54 PM

 

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The Federal Reserve will lean on banks to get rid of pay packages that reward bankers for risky trades without punishing them for massive losses, Fed Chairman Ben Bernanke said on Wednesday.

Bernanke said the U.S. central bank was reviewing banks' pay practices and had found that many of them had not changed their pre-crisis ways.

In response to a lawmaker's question during a congressional hearing, Bernanke said the Fed would push banks to move as quickly as possible to restructure compensation packages.

"Packages where the trader gets all the upside and none of the downside, that's the kind of thing we're trying to get rid of," he said.

The Fed and others have pointed to such pay practices as one of many culprits behind the financial crisis because they provided huge incentives for traders to make risky bets. When those bets went bad, the economy suffered but the traders had already pocketed fat bonuses.

The New York Times reported earlier on Wednesday that the Fed's review of the country's 28 largest financial firms found that many of those bonus and incentive programs remain in place. The report cited people briefed on the examinations.

Bernanke told Congress that the Fed expects to publish a report on bank compensation late this year or early next, but won't wait for the results before pressuring banks to change.

"We will be immediately working with the banks, and we have been working with banks already, to get them to modify their compensation practices," he said.

© 2014 Thomson/Reuters. All rights reserved.

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